When you make an application for a home loan, the rate you are given will be the rate for that day. Obviously, you will not be able to close on your new house that same day, so you have to worry about what the rate will be later on.

Most banks nowadays offer their potential borrower?s a ?lock in rate?. It is only practical to realize that there will be a delay between when the loan is applied for and the home is closed on. The rate of interest is a critical factor in the affordability of a home, so this can be an big point. So a lock in period can be negotiated with your lender, which will fix the rate for a certain length of time. This applies to either interest rates and points.

The lock in rate can be fixed at the application stage, the processing stage or the approval stage of the home loan.

Perhaps you have a chance to lock in 5.5% interest with one point for 30 days. What this gives you is the right to keep that rate, even if you do not close on the mortgage for an additional 30 days. This is a generally common lock in period that banks offer to attract customers. However, if you want a longer period, you may have to pay since lenders do not want to take such a risk for an extended time without getting something in return.

One of the problems of such a rate, however, is that if rates in general go down, you may be hit with the higher rate, unless there is an opt out clause. This agreement is made when the lock in period is fixed.

If your loan is not settled during the lock in period, it will expire and your new mortgage or new lock in period will be at the higher rate. If rates have not changed, you may be able to extend the lock in term.

There are combinations in terms of lock in periods.

Rate is locked, points are locked. Both interest rate and number of points are guaranteed.

Locked in Rate, floating points. The bank may opt to protect himself by setting a fixed base rate for the lock in period, but with the right to change the points to maintain the rate. This permits them to charge more points if they want.

If interest rates are changing a great deal, it is probably a good idea to ask your lender about lock in terms.

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